EconomyFinancialPemex and the risks it faces when it stops...

Pemex and the risks it faces when it stops exporting crude

It has not succeeded in previous years, but Pemex remains firm in its intention to progressively reduce oil exports, until they are completely eliminated in 2023, and thereby takes significant risks. In a 10-point list presented in December, the company affirmed that the decision marks a new course towards strengthening energy in the country.

The cessation of oil shipments abroad provokes harsh criticism about the future of the oil company and the income for the public finances. Analysts are divided between those who assure that Mexico and Pemex will no longer perceive their main source of resources and those who consider that the greatest risks have not even been taken into account: sanctions for the cancellation of contracts and the loss of a place in the market international crude oil, which would take years for the oil company to recover.

The main variable to know the impact that the cessation of exports could have has not yet been resolved, says Jesús Carrillo, who coordinates research on economics at the Mexican Institute for Competitiveness (IMCO). In its plan, with few details so far, Pemex has not said how the price of its mixture will be set, which, according to its proposals, would remain in the domestic market to be marketed between Pemex Exploración y Producción (PEP) and Pemex Industrial Transformation (Pemex TRI), the company’s division in charge of refining.

The conciseness of the plan leads to speculation about what will happen to the price of the mixture and, consequently, to the revenues. If based on international movements, analysts do not see major impacts. But if the company decides to set a price based on its own standards, it could lead to possible sanctions from the United States Securities and Exchange Commission (SEC), where the state company has placed debt, according to sources. within the company. A downgrade in your credit rating, which would make it difficult to access new debt or refinance your current one, is also a possibility.

“If you stop selling to foreign markets, but you sell to national markets at the same price, you don’t really lose a penny, then it all comes down to what the sale prices of PEP to Industrial Transfrmación are going to be, why stop selling? exporting does not become automatic to lose income “, says Carrillo, doctor in economics from the Colegio de México. “But I don’t think it’s going to happen, I don’t think Pemex is going to drop its price, I don’t think it’s very easy, there are some financial issues that make it practically impossible.”

If the price is set based on market trends, then the risk would be in how well the rating agencies would receive the impact and in the valuation of debt holders, who could get rid of the company’s papers because they consider that it has followed. a wrong strategy. The oil company’s bonds have been in speculative grade since the beginning of 2020.

A new impact on the debt profile would not be a small thing if one takes into account that the state company has constantly resorted to refinancing its liabilities as one of its main strategies. Just yesterday it announced the conclusion of a refinancing process for its short-term liabilities that, according to a statement, “allowed it to reduce the company’s debt by $ 3.2 billion and reduce its financial pressure by $ 10.5 billion.”

Another point is the export agreements that the oil company maintains. The state company has interannual contracts for the commercialization of its crude abroad that, according to a market participant related to the company’s processes, contain compensatory clauses and sanctions in the event of an early termination.

“It must be taken into account that in order for you to stop exporting, you must terminate in advance a contract that may remain in force or wait for it to expire,” said the source, who requested anonymity. “If you decide to stop exporting, or you get crude in the market and sell it as a Mexican quality crude or you pay an advance or a cancellation clause.”

Some US refineries in the Gulf of Mexico have been configured to run on Mexican crude and Pemex maintains long-term contracts with the companies that own the complexes. A cessation of exports from the Mexican side would lead companies to take refuge in crude oils of similar quality, such as Canadian. But the goal, analysts say, looks far off. The company has already considered reducing exports in previous years without success and for 2021 the Treasury considered a commercialization abroad of 870 thousand barrels per day. Pemex data to November indicate sales above one million barrels.

“Everything reads like a scenario that, frankly, meets the political needs of the context, but I don’t think it does not correspond much with the real possibilities of Pemex,” says Carrillo.

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